Retail participation in equity markets has always been muted. Is it due to lack of confidence in equity as an asset class and non-availability of information?

Retail participation in the equity market is [still] growing, but there has been a perceptible shift from direct equities to mutual funds (MFs). Before free pricing of IPOs got introduced, there was large-scale inflow of new equity investors through the IPO route. With the introduction of the free pricing regime for IPOs, investment bankers try to get the highest possible value to the issuing company. This is one of the reasons why fewer numbers of investors are entering the equity market through IPOs. The market must deliver value to the retail investor. The Securities and Exchange Board of India (Sebi) should make the investment banker disclose the market performance of all IPOs brought by him in the previous two years.

Brokerage has come down significantly in recent years, but it is still charged on the value of trade. Should it not be on the number of trades rather than the value?

There are two components in value delivery to a client. If it is merely a transaction execution through the Internet, the brokerage or the fee should be flat. However, when it comes to providing value-added services in the form of discussions and advice to a client from a qualified employee of the broking house, there is certainly a case for a value-based commission. In future, only the latter will get good margins. The execution margins will get squeezed to the minimum.

Online trading has some inefficiencies. There have been instances where the software throws out lagged or even irrelevant figures, leading to investors making losses on transactions executed on the back of such misguiding information.

Online trading is still in its nascent stage in India and, hence, there have been issues associated with both bandwidth at the customer’s end and the capacity constraint at the broker’s end. There’s also a case of capacity constraint at the stock exchanges, which are working on the issue aggressively. This will get sorted out as the IT infrastructure improves in the country.

Is the IPO market gaining steam once again? We have had a couple of big ones in the past month or two. Is it a sign of revival? What’s your take on the pricing of the recent IPOs? Aren’t they less aggressively priced than what we saw in 2007-2008?

There is no evidence to suggest that the pricing is less aggressive in the IPO segment now. However, if it seems so, it is because the secondary market is just starting to be active. Once the market becomes active, greed will overtake all senses. The issuers and investment bankers have not learnt the lesson that they are actually killing the goose that lays golden eggs—the retail investors—through aggressive pricing.

What’s your outlook for equities in the near/medium terms?

Geojit is bullish on both near and medium terms since there will be liquidity-driven upward momentum in the market, which will induce further investment in all sectors. However, one must remain watchful about the global market situation.

Tell us about your new offerings, plans, steps to enhance customer convenience, technology upgradation initiatives.

Geojit has just started a new initiative to offer real estate brokerage services for residential properties. Our customers, particularly the NRIs, find it difficult to get a credible organised service in this space. We will soon offer a service through which a customer will be in a position to take a printout of his income tax returns from the customer care site. Geojit has a pro-active grievance redressal mechanism. We reach out to clients with surveys and have internal targets and individual accountability to solve issues.

Is Geojit BNP Paribas following the franchise model?

In Geojit, we have a mix of branches as well as franchisees. Even though Geojit is the pioneer in the franchisee model, we have always been very selective in appointing them. We have found that it is relatively difficult to implement good practices and discipline among the franchisees, who in turn deal with customers’ assets. We are training the employees of franchisees to suit the requirements of a fast-changing market.

Broking houses are trying to emerge as a one-stop solution provider for all investment needs of customers. How successful have they been in this?

Broking houses have been trying to reinvent themselves to evolve into financial services organisations. From mere broking or execution of trades, they now cover the entire spectrum of investments. This will lead to wealth management for the mass affluent one day. To make this happen, broking houses will have to work towards enhancing the knowledge and profile of their employees. Transaction execution as broking will have pricing challenges and this service will be available at wafer thin prices. Broking houses have understood this and, hence, have started delivering more than transaction execution.

C. J. George, MD, Geojit BNP Paribas

tejas AT outlookindia DOT com